Exclusive: California Grand Jury Probing Shadowy Money Groups

A California grand jury has been convened in a probe that began when a PAC didn’t disclose the sources of its spending, as required by California law. Peter Stone reports.

A grand jury is now involved in a high-stakes California probe that is looking into whether a PAC and three so-called dark-money groups—including one with ties to the billionaire brothers Charles and David Koch—broke a campaign disclosure law by funneling $11 million from secret sources to influence ballot initiatives in the state’s 2012 election, The Daily Beast has learned.

The state grand jury, previously unreported, is part of an expanding investigation that’s been spearheaded by the state’s attorney general and the Fair Political Practices Commission (FPPC), according to two people familiar with the probe, who requested anonymity since they weren’t authorized to discuss the ongoing grand jury proceedings, which are secret.

The existence of a grand jury, something typically convened to obtain sworn testimony from witnesses, appears to signal increased prosecutorial interest in the inquiry to uncover the actual donors. Launched last fall, the probe could lead to eight-figure civil penalties and possible criminal charges, according to statements last year from the A.G.’s office and the FPPC, the state’s election watchdog agency.

Neither Lynda Gledhill, a spokeswoman for the attorney general, nor Ann Ravel, the head of the state FPCC, would comment on the probe or the grand jury’s activities.

The inquiry, focused on three out-of-state dark-money groups and a California business PAC, was triggered when the PAC, the Small Business Action Committee, reported in October 2012 spending $11 million on two ballot initiatives—but did not reveal its donors’ names, a legal requirement in the state for contributors to ballot initiatives.

The PAC used the funds in what turned out to be two losing efforts: opposing Proposition 30, a measure supported by Gov. Jerry Brown to temporarily raise the state income tax as well as the person tax for wealthier voters, and supporting Proposition 32, which would have barred unions from using payroll-deducted funds for political spending.

Since the probe’s inception, the FPPC, in tandem with the A.G., has issued subpoenas for documents and financial records to the PAC and the dark-money groups as well as individuals and other groups suspected of involvement in channeling the funds for the ballot drives, according to a person familiar with the inquiry. In recent weeks, the A.G.’s office, which has been ramping up its involvement, sent out another round of subpoenas, according to the same person.

Charles R. Schwab, the chairman of the Charles Schwab Corp., or an entity affiliated with Schwab has received a subpoena, according to a person familiar with the probe. In 2011 Schwab was one of about 30 wealthy donors who was cited in a speech by Charles Koch as having given at least $1 million the prior year to Koch backed conservative projects.

A spokesperson for Schwab declined to comment, as did Jason Torchinsky, a lawyer who has represented the PAC and also the three dark-money groups.

The involvement of a grand jury often indicates that an inquiry is intensifying. Grand juries are commonly used in cases where prosecutors are moving to bring chargesor pressuring targets to cut deals, say white-collar lawyers. It’s not known whether any of the three dark-money groups, the PAC, or others have received target letters, which often signal that charges are in the works.

“The convening of a state grand jury is as serious a step in a state investigation as a federal grand jury is in a federal probe,” white-collar attorney Stan Brand told The Daily Beast. “It’s not a foregone conclusion that someone will be charged, but it indicates a heightened level of prosecutorial interest.”

Brand added that California’s disclosure law for ballot initiatives would trump the IRS rules that allow dark-money groups that have “social welfare” tax status to keep their donors secret.

Other lawyers concur. “The Internal Revenue Code would not prevent California law from requiring disclosure of donors,” said Marc Owens, the former head of the IRS tax-exempt unit and now a partner at Caplin & Drysdale.

If prosecutors do move forward, their investigation could shine light on parts of the burgeoning network of conservative “social welfare” outfits that spent hundreds of millions in the last two elections. Under IRS rules, social-welfare groups can engage in political activities so long as that work is not their primary purpose, a loosely enforced rule often interpreted to mean that 49 percent of a group’s spending can go toward political work.

One of the three groups that allegedly channeled the funds to California was the Arizona-based Center to Protect Patient Rights, founded in 2009 by Koch operative Sean Noble, who has emerged in recent cycles as a big player in conservative political and fundraising circles. Noble has spoken at least twice at the billionaire brothers’ biannual conferences aimed at tapping other wealthy conservatives for their favorite projects, and he has been a key strategist at small Washington meetings with other GOP allied groups such as the Karl Rove-founded American Crossroads.

“Sean is the wizard behind the screen” for the Kochs and their network of wealthy donors, said one GOP operative familiar with Noble’s political work.

In 2010 and 2012, Noble’s Center appeared to act mainly as a cash conduit, shipping millions to allied conservative groups. In the 2010 cycle, for instance, it channeled almost $55 million—a sum almost identical to its revenues—to a couple dozen conservative bastions including Americans for Tax Reform and the American Future Fund, according to the group’s filings with the IRS. Most of that largess went to pay for advertising backing GOP candidates or attacking Democrats.

“We had no involvement whatsoever, financial or otherwise, neither directly nor indirectly, on anything to do with Prop. 30 or Prop. 32,” a spokesman for Koch Industries, Rob Tappan, said in an email. Tappan, however, indicated he spoke only for Koch and not “independent entities,” such as Noble’s Center. Asked if the Kochs had received subpoenas from the grand jury, Tappan said it was company policy not to comment on “the existence or nonexistence of investigations.” Noble did not return phone calls seeking comment.

Koch Industries, a sprawling energy and manufacturing conglomerate, is the country’s second-largest privately held company, with annual sales of about $100 billion and some 70,000 employees.

The circuitous routes apparently used to funnel the $11 million into the state were deemed “the largest contribution ever disclosed as campaign money laundering in California history” by the Fair Political Practices Commission.

But the PAC only disclosed that the funds came from a group in Arizona, Americans for Responsible Leadership, a two-year-old “social welfare” entity that had never before spent funds in California. When the FPPC asked the Arizona group for more information and was rebuffed, the commission went to the California Supreme Court, which ordered the outfit to reveal where it received the funds.

To comply, the Arizona group said the $11 million came initially from another dark-money group, the Virginia-based based Americans for Job Security, which is registered with the IRS as a “business league,” which like social-welfare groups can shield the names of its donors.

Making the money trail even murkier, the Virginia group passed the $11 million along to Noble’s Center to Protect Patient Rights which, in turn handed it over to Americans for Responsible Leadership. (Notably, Noble’s Center donated $4.8 million to Americans for Job Security in a separate 2010 money transfer, according to the center’s IRS filings.)

As the California probe has intensified, it has sparked the hiring of some of Washington’s high-powered election-law specialists. For several months, Jason Torchinsky was representing the PAC and the three dark-money groups, but other lawyers with big-name firms are now involved on behalf of unspecified clients. One firm, not previously reported, is Patton Boggs, whose attorneys include Ben Ginsberg, the famously plugged-in election lawyer for numerous GOP campaigns and committees, and William McGinley; also involved in the case is Wiley Rein, home of Jan Baran who for many years has represented Koch in election-law matters. Both McGinley and Baran declined to discuss their clients or the probe.

The grand jury and the widening California probe has stirred considerable unease among some Koch allies and in certain conservative quarters, according to multiple GOP operatives who asked not to named. “People are very puckered up about it,” said one such operative.

Nobody but a hardcore, Fox-watching, Daily Caller-reading Republican will vote for Senator Rand Paul (R-KY) for President now.

It turns out that Senator Paul has been pallin‘ around with a neo-confederate pro-secessionist named Jack Hunter. Hunter is a close Congressional aide to Senator Paul, and is, according to Media Matters, a “regular” on Fox, writes for the conservative Daily Caller (also known as the Daily Screamer for screaming at President Obama during a Rose Garden speech, but they are also not racists — they just play racists when covering the White House), is associated with former South Carolina Senator Jim DeMint (big surprise), and helped Paul write his 2010 book The Tea Party Goes to Washington.

The Free Beacon reported Tuesday that among Hunter’s other activities like advocating for the secession of the South as chairman of the “implicitly racist group” League of the South or writing for The American Conservative or promoting Ron Paul’s presidential run on Fox News Business (‘cuz nothing says freedom like secessionism, just ask Sarah Palin), he was also a shock jock supporting the assassination of President Lincoln.MORE HERE

WASHINGTON — As the immigration reform debate begins in earnest in the House, one of the biggest issues is the math. The bill needs 218 votes to pass. Democratic leaders said they think they can convince most of their party’s 201 members to vote in favor. That means they’d need around 20 Republicans to join them. But House Speaker John Boehner (R-Ohio) has repeatedly insisted he will only allow the House to vote on an immigration reform plan if a majority of Republicans support it.

That would mean finding about 120 Republicans willing to back a plan that includes a pathway to citizenship for undocumented immigrants, which former GOP leadership aides said is almost impossible. Somewhere between 50 and 80 is a more realistic number, they said — which means a potentially overwhelming majority of House members in favor of reform.

If it becomes clear that the House has far more votes than needed to pass comprehensive immigration reform, the pressure on Boehner to “let the House work its will,” as he’s fond of saying, increases exponentially. That pressure may be the only way to get comprehensive immigration legislation through the House that includes a pathway to citizenship, along with border security and changes to legal immigration and enforcement policies.

HuffPost will be tracking support as the debate goes on. The following count is based on the combined intelligence of several immigration groups and informed House staffers, along with a look at lawmakers’ past votes, public statements and district demographics. It maps out which House members will either support immigration reform or, at the very least, remain quiet on it. If Boehner refuses, as he has said he will, to pass the bill without a majority of Republicans, below are the politicians reformers will try to win over, including some skeptical Democrats and those likely entrenched on either side.

This is not a final count, and will continue to be updated as more information becomes available. If your representative has sent you a letter or made a statement on immigration, please email it to us here with “immigration whip count” in the subject line.

Former Alaska Gov. Sarah Palin (R) is considering going back on the ballot.

In an interview on “The Sean Hannity Show” Tuesday, the 2008 vice presidential candidate indicated she might throw her hat in the ring to become one of Alaska’s U.S. Senators.

“I’ve considered it because people have requested me considering it,” Palin said, after Hannity mentioned rumors of a potential Senate run.

“I’m still waiting to see, you know, what the lineup will be and hoping that, there again, there will be some new blood, new energy — not just kind of picking from the same old politicians in the state,” Palin continued.

Palin also took the opportunity to swipe at Sen. Mark Begich (D-Alaska), who she believes “has got to be replaced.”

“[Begich] has not done what he has promised to do for the people of Alaska and that was to represent what it is that the nation needs in terms of energy development and so many other … development issues that are near and dear to an Alaskan’s heart,” Palin said. “Because he’s on the wrong side of the aisle, he has to go along to get along with his Democrat leadership. And that’s a shame. That’s a waste of opportunity for our nation.”

WASHINGTON — Senate Majority Leader Harry Reid (D-Nev.) signaled Tuesday that his Democratic caucus members are becoming so frustrated with Republicans blocking President Barack Obama’s nominees that they will again consider whether to invoke the so-called nuclear option to change Senate rules.

“I’m going to have a full meeting with my caucus on Thursday. We’re going to talk about nominations,” Reid said. He did not hint what he would do, but suggested his deliberations were far enough along that the sessions with his members would be decisive.

“I think Thursday, by the time the day’s out, you’ll have a better idea of what we’re going to try to do on this,” Reid told reporters on Capitol Hill.

Senate Democrats had threatened to change rules at the start of the session to make filibusters more difficult, but settled on only mild reforms. At the time, Reid promised not to change the rules for the rest of the Senate session as long as the GOP members conducted themselves in the a less obstructive manner more in keeping with Senate history.

But soon thereafter, Republicans attempted the first-ever filibuster of a defense secretary nominee. They have also slow-walked numerous nominees, subjecting them to hundreds of questions before granting a vote — usually resulting in overwhelming confirmation.

The nuclear option involves using arcane Senate parliamentary procedures to force a simple majority vote, which would than set precedent for similar future votes. Many Democrats feel like Senate Minority Leader Mitch McConnell (R-Ky.) has broken his side of the agreement, and they may be prepared to break theirs.

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